World Bank forecasts tighter monetary policies in Asia Pacific due to price pressures
Growth in the East Asia and Pacific region will ease from 6.3 percent in 2018 to 6.1 percent in 2019 due to a slowdown in China, the June 2018 Global Economic Prospects report of the World Bank said. Subsequently, capacity constraints and price pressures are expected to intensify over the next two years, leading to tighter monetary policy in both commodity exporting and importing economies.
Despite the slowdown in China, the World Bank says that it will be offset by a pickup in the rest of the region.
“Growth in China is anticipated to slow from 6.5 percent in 2018 to 6.3 percent in 2019 as policy support eases and as fiscal policies turn less accommodative. Excluding China, growth in the region is forecast to moderate from 5.4 percent in 2018 to 5.3 percent in 2019 as a cyclical economic recovery matures,” the report said.
In regards to Mongolia, any slowdown in China’s economy will likely mean the same for Mongolia’s economy. However, the slowdown is not particularly significant or dramatic in terms of growth, therefore the current projections put the impact as minimal.
The report underlined that the anticipated slowdown in global commodity demand could put a cap on commodity price prospects and on future growth in commodity-exporting countries. Major emerging markets have accounted for a substantial share of the increase in global consumption of metals and energy over the past two decades, but growth of their demand for most commodities is expected to decelerate, the Special Focus section of the report said.
“The projected decline in commodities’ consumption growth over the long run could create challenges for the two-thirds of developing countries that depend on commodity exports for revenues,” said World Bank Senior Director for Development Economics Shantayanan Devarajan. “This reinforces the need for economic diversification and for strengthening fiscal and monetary frameworks.”
Globally, despite recent softening, global economic growth will remain robust at 3.1 percent in 2018 before slowing gradually over the next two years, as advanced-economy growth decelerates and the recovery in major commodity-exporting emerging market and developing economies levels off, the World Bank said.
“If it can be sustained, the robust economic growth that we have seen this year could help lift millions out of poverty, particularly in the fast-growing economies of South Asia,” World Bank Group President Jim Yong Kim said. “But growth alone won’t be enough to address pockets of extreme poverty in other parts of the world.
Activity in advanced economies is expected to grow 2.2 percent in 2018 before easing to a two percent rate of expansion next year, as central banks gradually remove monetary stimulus, the June 2018 Global Economic Prospects says. Growth in emerging market and developing economies overall is projected to strengthen to 4.5 percent in 2018, before reaching 4.7 percent in 2019 as the recovery in commodity exporters matures and commodity prices level off following this year’s increase.
After many years of downgrades, consensus forecasts for long-term growth have stabilized, a possible signal the global economy is finally emerging from the shadow of the financial crisis a decade ago. However, long-term consensus forecasts are historically overly optimistic and may have overlooked weakening potential growth and structural drags on economic activity, the report cautions.